Trading Plan for February 2, 2011
Current Long Positions (stop-losses in parentheses): QID (10.44), TWM (11.75)
Current Short Positions (stop-losses in parentheses): ZQK (4.81)
BIAS: 21% Short (counts QID & TWM as a short)
Economic Reports Due Out (Times are EST): MBA Purchase Applications (7am), Challenger Job-Cut Report (7:30am), ADP Employment Report (8:15am), Treasury Refunding Announcement (9am), EIA Petroleum Status Report (10:30am)
My Observations and What to Expect:
Futures are flat prior to the open.
Asian markets were up well over 1.5% yesterday, while European markets saw mixed results.
The market finally broke well above 1300 and closed at 1307 on the S&P yesterday, which is a 52 week high for the index and completely erases the losses that the market experienced on Friday.
1275 represents the new higher-low in this market and the existing trend-line that has held back to 9/1.
S&P is right back to trading above the 10-day moving average.
Careful with the market at this stage, as it closed well outside the upper-bollinger band yesterday and the last six times dating back to August 2009, has resulted in strong selling pressures there after, usually within a two-day time frame.
Similarities abound when comparing the market action of the last two weeks to what we saw back in April when the market topped. Action going forward has a high probability of being very volatile and choppy.
For the bears - Sell something...anything...
For the bulls - Consolidate at or near the highs over the next few days - it will be difficult to extend this rally much further in the very near term.
My conclusion: Breaches beyond the upper bollinger band often invites profit taking in the short-term, and that adding a lot of new long positions to the portfolio here is dangerous. Let the markets calm down, and tighten the stops on the positions you already have. I don't have a strong belief in this market rallying again, like what we saw yesterday, until the market consolidates or pulls back first.
Here Are The Actions I Will Be Taking: